Can the holder of a mortgage foreclose on a defaulting party if they don’t also possess the promissory note? That was the question put before a New Jersey appeals court recently during a case involving Capital One Bank, Freddie Mac, and contested foreclosures. The court’s answer: the foreclosing party must indeed hold both the mortgage and the promissory note … but there’s a bit more to it than that.
The New Jersey Law Journal reports that the case dates back to March 2005, when James Peck IV took out a mortgage with Chevy Chase Bank. That bank sold the note to Freddie Mac but kept the mortgage. Chevy Chase eventually merged with Capital One in 2009, and the next year, Peck defaulted on his mortgage.
In February 2013, after one unsuccessful foreclosure attempt the year prior, Capital One (which was servicing the loan for Freddie Mac) once again began foreclosure proceedings. Peck, an attorney who had represented himself through much of this legal back-and-forth, passed away in July 2016, but his estate continued the appeals process after retaining counsel. In August 2016, the case was appealed, with the Peck estate’s lawyers making the argument that Freddie Mac owned the loan, and was thus “the only entity with the right to enforce the mortgage.”
On Monday, the Superior Court of New Jersey’s Appellate Division ruled that “the plaintiff in a foreclosure action must demonstrate both possession of the note and a valid mortgage assignment prior to filing the complaint,” so as to prevent “the possibility of one entity foreclosing on the home while the other enforces the note.”
“The issue is whether Capital One, both the successor owner and assignee of the mortgage, and the loan servicer, had the right to foreclose,” wrote Judge Ellen Koblitz, one of three judges on the New Jersey Appellate Division panel. She also cited a 2013 Freddie Mac internal bulletin which declared that foreclosures must typically be “processed or litigated in the servicer’s name.”
The New Jersey Law Journal writes, “Since the defendant was provided more than sufficient notice that Capital One was the servicer for Freddie Mac, and since Freddie Mac publicly declared its policy to foreclose through its servicers, and since Capital One did possess the note at an earlier foreclosure proceeding as well as an assignment, the court said the irregularities were not sufficient to reverse the foreclosure judgment.”
In the opinion, Koblitz added, “We do not intend by this decision to approve the way this foreclosure was prosecuted. The note should have been in Capital One’s possession at the time it filed this foreclosure complaint.”
Nicholas Stratton of Stratton Stepp, an attorney representing the Peck estate, criticized the ruling, according to the New Jersey Law Journal, calling it “hard to square with other cases,” adding that “previously, if you own the note, the mortgage follows the note.”